Hops Matters

A Heady Time to be a Brewer in Texas

Many of you have been following along with some anti-beer legislation in Texas that has been slowly making its way through the legislative process. And many of you may be asking yourselves what the hell is going on. I’ve been asking myself that quite a bit over the last few weeks so you are not alone. I wanted to provide an update and hopefully clarify some of the details of the bill that I’m most concerned about HB 3287 and the Senate companion SB 2083.

Disclaimer 1: All of the information that I’m providing is current as of May 9th, 2017

Disclaimer 2: Things in the Texas legislature change so incredibly quickly that the details of my post could be different in 24-48 hours.

Onward through the fog

First things first: Currently in the state of Texas we are regulated by the Texas Alcoholic Beverage Commission. The way that the TABC regulates manufacturers of alcohol is on a per location basis. Meaning that in Texas, Hops & Grain Brewing could own multiple brewing facilities but each of them would hold individual licenses and thus be subject to production limits per location. Currently, H&G holds a Brewers Permit in TX. That means that we can produce ale and malt beverages above 5.11% ABV. We are allowed, by law, to sell to consumers for consumption on site up to 5,000 bbls of beer so long as our total production of beer is under 225,000 bbls. This means that if we have 5 facilities around TX each facility can manufacture up to 225,000 bbls and sell up to 5,000 bbls on site for on site consumption. We are currently prohibited from selling any of our product to consumers on site for off site consumption. We are also allowed, by law, to self-distribute up to 40,000 bbls of beer per licensed location.

Now that we have the details out of the way let me explain to you what HB3287/SB2083 are proposing. Firs of all, the bill was authored by the wholesalers, not by or with any brewers. The bill was even presented to brewers by wholesalers as a way to protect us from International Brewing Conglomerates like ABI and MillerCoors. I think we’re doing just fine without the protection nor did we ever ask for any protection. We have great relationships with our current wholesaler partners but I’m not naive enough to think that they would go out of their way to draft legislation just to protect my interests. Let’s be real here.

The way that the bill is presented, as of the Senate Business and Commerce Committee hearing yesterday, reads like this. Instead of regulating Brewers on a per location basis, the bill would now regulate Brewers as a total of all the bbls produced at all breweries owned by a common interest. For instance, Karbach Brewing in Houston was recently acquired by ABI. If this bill passed, Karbachs total production volume would be the sum of all ABI brewing facilities as well as Karbachs facility. This would take them over the 225,000 bbl limit and impact their ability to sell the 5,000 bbls currently allowed in the their tasting room.

Here’s another impact of the bill. The 5,000 bbls allowed to be sold on site would also be the sum of all breweries with common ownership. For instance, Hops & Grain Brewing in Austin, San Marcos and Pint & Plow Brewing in Kerrville, TX would all be counted towards our 5,000 bbl limit because of my common ownership with the three facilities. If we had any investors who had an ownership interest in another brewery in Texas then that breweries tap room sales would also be lumped into our total.

Now here’s where it really gets nefarious. If the total production were to increase above 225,000 bbls this bill would still allow for the 5,000 bbl sold on-site but the beer would have to be sold to a wholesaler and then purchased back at retail price before it could be sold on-site. But the beer would never actually leave the brewery. A brewer would have to invoice their distributor at the normal wholesale cost and then the wholesaler would send back an invoice at retail cost before the brewer could sell it. And because of the wonders of the Alcoholic Beverage Code, the brewer would have to pay the invoice immediately and the wholesaler would be allowed credit terms on their invoice.

So, let’s just say for instance that New Belgium decided to make an investment in Hops & Grain and acquire a 1% ownership stake. Because our collective production would now be over 225,000 bbls we would be subject to this dock bump tax from our wholesalers before we could sell beer on-site. We would lose a massive margin and most likely have to increase our beer prices on-site to continue to employ our tap room staff and cover our operating expenses.

Also, let’s say that Austin Beerworks, (512) Brewing and Live Oak Brewing decided to form a partnership. Even thought neither of them currently self distributes over the allowed 40,000 bbls of beer individually they would each have to cease self-distribution because they now collectively self-distribute over 40,000 bbls.

Tell me how in the hell this “protects” craft brewers? I’ll answer that for you, it doesn’t. It’s a bill created for and by the wholesalers and only benefits the wholesalers. They claim that the current three-tier system is what has allowed us to prosper as a craft beer industry. But why then is Texas the only state in the United States that doesn’t allow Brewers to sell beer to-go? It seems to be working well in the other 49 states. And it’s not just good for brewers, it’s also good for the state. Increased sales by breweries translates into increased tax revenue for the state. Increased tourism and visitor traffic to brewery tasting rooms introduces more people to craft beer. Introducing more people to craft beer translates into increased sales at grocery stores, convenient stores, bars and restaurants. And the large majority of the beer that is sold to these retailers is sold to them by wholesalers. So, increased sales at brewery tasting rooms also translates into increased sales for wholesalers.

In closing, this bill is nonsense. It’s being authored by Representatives and Senators that owe wholesalers for their campaign contributions. And that’s how politics work, unfortunately.

As a state we’ve been making legislative progress over the past 10 years that have allowed brewers more access to market and allowed consumers more variety to choose from. And it has generated more tax revenue for the state. HB3287/SB2083 would set us back dramatically and in the process continue to generate more revenue for wholesalers without adding any value to brewers or retailers nor would it generate any tax revenue back to the state. It’s bizarre and unfortunate how these things work but I’m hopefull that we’ll come out of this in one piece, even if we are a little bloodied and beat down for our fight.

Hope this clears up a few questions, if not feel free to hit me up on the twitters @hopsandjosh and I’ll try and answer any questions, 140 characters at at time.